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The value premium and time-varying volatility

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Li, X., Brooks, C. and Miffre, J. (2009) The value premium and time-varying volatility. Journal of Business Finance and Accounting, 36 (9-10). pp. 1252-1272. ISSN 1468-5957

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To link to this article DOI: 10.1111/j.1468-5957.2009.02163.x

Abstract/Summary

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the difference in returns between value and growth stocks. This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the value-minus-growth portfolios. Our results show that the time-series of value premia is strongly and positively correlated with its volatility. This conclusion is robust to the criterion used to sort stocks into value and growth portfolios and to the country under review (the US and the UK). Our paper is consistent with evidence on the possible role of idiosyncratic risk in explaining equity returns, and also with a separate strand of literature concerning the relative lack of reversibility of value firms' investment decisions.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:18675
Uncontrolled Keywords:value premium;time-varying volatility;CAPM;GJR-GARCH(1,1)-M
Publisher:Blackwell Publishing Ltd

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